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Merricks Capital Partners Fund Portfolio and Market Update February 2022

The Merricks Capital Partners Fund returned 0.8% in February and 10.4% on an annualised basis since inception.

Three new loans settled during the month, deploying $63m of cash and reducing cash on hand for the Merricks Capital Partners Fund from 18% of NAV to 12%. With $95m worth of new investments expected to close in March, the Fund is forecast to have less than 5% of its NAV in cash by end of month and a further $100m of likely investments to close in April. Two of the three new loans for the month were for mixed-use land development, one NZD$103m facility in the seaside town of Mangawhai, approximately 80km north of Auckland, and the other loan a $35m facility to fund a 75-hectare land holding in Melbourne’s western growth corridor. The final loan to settle in February was a $30m second tranche to an existing borrower with dairy farms in the north-west of Tasmania. The additional funds increased our security pool by an estimated $52m and reduced the overall loan LVR to <56%. The Fund’s macro credit hedge of Credit Default Swaps benefited from expanded spreads in February as global credit markets reacted to the sanctions on Russian banks and general economic uncertainty.

Merricks Capital’s investments team continues to track the significant domestic and global events that emerged during February. Our primary focus was to monitor for early signs of any direct and indirect risks that could impact the quality of borrower’s assets and overall Fund performance. These events included widespread flooding on the east coast of Australia, military escalation between Russian and Ukraine and potential building industry distress resulting from the collapse of Probuild. While the Fund has no direct exposure to Probuild, we will continue to assess the contagion risk for other builders with predominantly fixed price contracts and continue to monitor the situation closely. The Eastern seaboard flooding has had no direct impact on any of our borrowers’ assets, however the widespread damage and disruption has amplified temporary supply chain challenges, such as delivering grain to port terminals. We expect these to largely resolve over the coming weeks. Finally, the Russian invasion of Ukraine will continue to have an impact on global commodity prices and credit market confidence. Even as markets become more volatile, we expect to see defensive investment classes such as structured credit continue to perform.

As at today, we see a strong pipeline with the ability to deploy +$500m across our strategies over the next 3 months, with $490m of term sheets issued and $1.1b of identified opportunities across our investment sectors. We expect asset-backed lending into investment classes that historically outperform inflation (real estate and soft commodity producing businesses) to continue to benefit from further macro dislocations in credit markets.

 

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